The crisis at Grangemouth oil refinery is a sign of a wider malaise in the refining industry according to experts.
The clouded situation at the Scottish refinery in the last fortnight follows a dispute over a worker which saw Unite union members threaten to strike.
The site’s owner Ineos effectively retaliated by shutting the refinery until Tuesday and it has warned the whole site may have to close for good.
Andrew Horstead, Head of Commodities Research at Utilyx told ELN: “The prospect that Grangemouth may remain closed is a culmination of problems that have blighted the European refining industry over the past few years and is an echo of the problems faced by the Coryton refinery, which closed last year due to bankruptcy.”
Businesses are really struggling, he said: “Simply put, the high cost of crude oil, rising cost of energy in the UK, refining overcapacity in Europe, weak domestic demand and growing competition from new plants in Asia and the Middle East, means Europe’s refiners are struggling; margins are poor and their market share is dwindling.”
They also have to compete with the US, he said: “Traditionally the US would import gasoline and export diesel; now thanks to the shale gas boom which is providing much cheaper fuel than in the UK, the US is importing less gasoline and competing with Europe in the export market.”
This doesn’t paint a good picture going forward, added the analyst: “Throw into the mix the cost of proposed UK and EU emissions legislation, then the future of the industry looks pretty dire.”
However he is not expecting Grangemouth to have “a material impact on prices” as wider issues such as the US debt ceiling will have more impact. “That’s because they’re still producing oil from the North Sea and at the site nothing’s been disrupted,” he explained.
Andrew Horstead is speaking at Energy Live 2013 in London, come along on 7 November if you’d like to ask him any questions about the energy market.